Humanity is shaped by its crisis. So is trading, as old as humanity as well. In order to survive, trading will continuously have to adapt to demand and supply shocks, logistical challenges, increase in risk premia and last but not least liquidity available. In fact liquidity has always been and will continue to be the number one risk consideration for any trading company.
In current circumstances the markets seem well supplied with liquidity. This is also amplified by the recent commodity prices lows, especially on the oil side. But how rescue liquidity works its way through the systems has numerous operational challenges only amplified by a very volatile market sentiment. Looking also forward to echoes on the results of EBRD’s and IFC’s pledges to support global trade and its financing.
We already see in the capital markets that not all corporates are equal in front of QE measures. This is is even more exacerbated by potentially hasty actions taken by some rating agencies. The world of non-rated and typically privately owned commodity traders is even more opaque. The bigger players have understood the system limitations and opportunities and having as well the capacity means engaged in a quest for structuring, implementing and generally relying on more diversified funding structures. Some have taken the game even further and supplementing the banks’ offering are playing an active lender role in producing countries.
Smaller players are often brushed off by banks for various reasons like having too little equity cushion, the mood swings in the risk management chain contingent on the latest fraud case, lack of comfort vis-à-vis their business model or risk practices.
Hence below questions are addressing the smaller and especially mid-size trading firms:
- What is the risk of running only uncommitted transactional financing lines?
- What is the trigger to actively consider and implement other sources of liquidity especially committed ones?
- From what business size do you believe a trading company can attract committed and / or unsecured financing?
- What hurdles do you envisage in diversifying your sources of liquidity?
- What instrument would you give priority?
Looking forward to exchanging views. Stay safe!